A 34.9% gain for stocks priced in gold is pretty good for a year’s work. But it’s a far cry from the 69.1% that stocks have gained when they are priced in dollars. Do you see what has happened here? Stocks have made you lots of dollars. But the dollar itself has fallen in value compared to the real and eternal value represented by gold.

Here’s the most troubling part. The entire 34.9% gain made by stocks — priced in gold, that is — was achieved in just the first five weeks of rallying from the March 2009 bottom. That means for most of the last year, since mid-April, while it has appeared that stocks have been furiously rallying, in reality they’ve just been sitting there. All risk, no reward.

Here’s the insight I get from these facts. In just the first five weeks after the bottom, stocks completely absorbed the good news that the economy was not going to fall into depression, as was widely feared at the time, and that the recession would soon be over. The 34.9% rally, priced in gold, is pretty close to the 28% recovery in expected corporate earnings we’ve experienced since the bottom.

So why, then, did stocks — priced in dollars, not gold — continue so much higher? Simple: We experienced inflation-induced growth. Throw enough stimulus money, an “extended period” of zero interest rates from the Fed, and a big dose of government debt at the economy, and you will get some growth – and, eventually, lots of inflation.

2 years ago these articles were only on fringe ‘tin foil hat’ websites…now their on wsj every week…

excerpt:

“The nets came down on Wall Street, too. As the idea took hold that the Fed could meet any serious crisis by carpeting the nation with dollar bills, bankers and brokers took more risks. New forms of business organization encouraged more borrowing. New inflationary vistas opened.”

great wsj on how the stock market ‘rally’ of the past 6 months is nothing more than a massive money bubble inflating stocks & commodities.

excerpt:

“In mid-May, Mr. Bernanke’s outlook seemed to change. Maybe he didn’t approve of the sharp housing rebound — like we need more houses! Maybe he saw inflation in commodity prices — oil popping to $72 from $35. Or, more likely, he finally realized that he was the market and took his foot off the money accelerator, as evidenced in the contracting monetary base (see nearby chart). Sure enough, things rolled over — the market dropped 7.5% from its peak, oil prices dropped almost 17%, and even gold has lost some of its luster. But in July, the Fed started buying again and the market rallied.”

Excerpt: “Too much fiat money results in inflation — which pools in certain sectors at first, such as housing or financial assets, but ultimately raises prices in general.

Inflation is the enemy of capitalism, chiseling away at the foundation of free markets and the laws of supply and demand. It distorts price signals, making retailers look like profiteers and deceiving workers into thinking their wages have gone up. It pushes families into higher income tax brackets without increasing their real consumption opportunities.”